Friday, December 16, 2016

Will Trump's Corporate Tax Cut Be a Phony Cut?

President-elect Donald Trump’s tax plan will be the “largest tax change” since Reagan, Steven Mnuchin told CNBC in a 11/30 interview. That was the day after Trump officially cast the former Goldman Sachs banker and Hollywood movie financier in the role of US Treasury Secretary. During the interview, Mnuchin confirmed the Trump campaign’s promise to cut the federal statutory corporate tax rate to 15% from 35%. In addition, overseas profits will be brought back to the US, he said, obviously referring to the one-time 10% repatriation tax that the administration intends to implement. Overall, cutting corporate taxes should stimulate spending and jobs, he argued. Mnuchin also emphasized that taxes are “way too complicated” and people spend “way too much time worrying about how to get them lower.”

That all sounds good to me, but there’s a catch. Trump’s corporate tax cut might not be as bold as suggested by the 20ppt reduction in the tax rate. That’s especially true if the tax code is simplified to close tax loopholes, as Mnuchin implies...

The TPC [Tax Policy Center ]observed in its revised appendix: “In his Detroit speech, Mr. Trump said his plan would ‘eliminate the Carried Interest Deduction and other special interest loopholes’ and in his New York speech that ‘special interest loopholes’ would be closed, but no specific provisions are identified. The fact sheets on tax reform indicate that the plan ‘eliminates most corporate tax expenditures’ [i.e., deductions] except the research credit.”

And get this:

Mnunchin did say in his interview that some of the lost tax revenue from corporations would be made up on the personal income side.

Let me post that again:

Mnunchin did say in his interview that some of the lost tax revenue from corporations would be made up on the personal income side.